Baby boomers preparing for retirement are driving a surge in small business sales, as they find more and more buyers confident enough in the improving economy to expand their own businesses through acquisitions.
In the first three months of this year, the number of sales that closed jumped 56 percent from the same time in 2012, according to BizBuySell.com, an online marketplace for small businesses. Retirement was the No. 1 contributor to business sales in the fourth quarter of last year and the first quarter of 2013, according to a survey by Pepperdine University and two trade groups, the International Business Brokers Association and M&A Source.
“It was almost like a light switch went on in January,” says Michael Schuster, a broker with World Business Brokers in Miami. “We started getting a lot of activity with sellers who said, ‘I don’t want to go through another downturn or tough time. I want to see if I could sell my business.’”
Sales are so strong in Florida that Schuster’s brokerage is opening two more offices in the state. Three-quarters of the sellers or potential sellers that his company sees are baby boomers, most of whom don’t have family members willing to take over their businesses. Some of these owners want to sell just part of their firms, essentially taking on a partner, because they don’t want to keep carrying all the risk themselves.
Honey Rand fits the category. After 17 years of running her Tampa, Fla., public relations firm Environmental PR Group, she’s starting to think about selling. The 55-year-old wants to get away from the administrative work that goes into running a business, and focus on working with clients.
“Like most people who end up starting a business, I’m really good at the work I do and I’d love the opportunity to wallow around in it,” says Rand. She’s optimistic that she’d be able to sell, because she was approached twice by prospective buyers in the last 10 years. And Rand expects that she would remain with the company for a period following a sale to help with the transition to new management – something that many business owners do.
While she hasn’t definitely decided to sell just yet, she plans to talk to a broker soon.
“I like to think ahead, to understand the process and the things that could affect a sale or sale price. When the time comes, or if it comes, I want to be ready. I don’t want to feel like it’s a fire sale,” she says.
In California, the pace of sales is more of a “slow pickup, not a huge spike,” says Dave Richards, owner of Keystone Business Advisors, a brokerage in Westlake Village, Calif.
“Baby boomers are where we’re really seeing the growth. It’s pent-up demand,” Richards says.
One of those boomers is Walt Pocock. In late 2011, Pocock met with a broker to discuss possibly selling his Chino, Calif., business, Palo Verde Landscape Management Co. But he and his wife Dee, who also worked with the company, weren’t quite ready to let it go. However, selling became “something we were thinking about from then on,” Pocock said.
Within a year, the 70-year-old decided he was ready to retire and Dee, 78, agreed. The difficult business climate was a factor in their decision.
“The economy had not been good and it had been a struggle and we got tired of the struggle,” he said.
The put the company on the market in January, and quickly had several bidders. Pocock got his full asking price, and the deal closed April 1. Now he and his wife are looking forward to traveling around the country in their motor home.
Sellers like Pocock are going to keep the market for small businesses thriving for years to come.
“Trillions of dollars of business value are going to change hands in the next 10 to 20 years,” says Bob Balaban, managing director at Headwaters MB, an investment bank based in Denver. He believes so-called ‘strategic acquisitions’ – purchases by companies looking to expand – will be a key factor in that trend. In a tight economy, companies looking to grow feel that it would take years to build up their businesses.
“They have to do acquisitions to continue to grow and grow quickly,” Balaban says.
Buyers appear to be ready to step up and are looking for companies that will be good fit with their existing operations. Health-care related businesses like medical billing firms, pharmacies and even medical and dental practices are particularly in demand, says Keystone’s Richards. He’s seeing less interest in restaurants and retailers, industries where profit margins are thinner and where many companies are still struggling. Schuster, the Miami broker, says he sees people who were waiting for the economy to pick up, and they’ve decided that business is good enough for them to take the plunge.
“There’s a lot of people who were sitting the sidelines and could not do that anymore – the election’s over and things are getting better,” he says.
Sellers are benefiting from this trend because buyers are willing to pay more money if a deal will quickly get them into the markets they want to serve, says Mike Carter, CEO of BizEquity, a company that helps businesses calculate their sales price.
“For a growth company, we’re seeing them getting almost 15 percent more than what they were getting four years ago (during the recession),” he says.
Creative Kidstuff, a toy retailer based in Minneapolis, just expanded by buying a 26-year-old online and catalog toy retailer, Sensational Beginnings. Roberta Bonoff, CEO of Creative Kidstuff, said the owner was tired and ready to sell. Bonoff declined to disclose the purchase price, but said “everybody walked away from the purchase with their needs met.”
Both companies serve similar markets, but 87 percent of Creative Kidstuff’s revenue comes from its six traditional brick-and-mortar stores. Buying Sensational Beginnings will allow it to expand its online operations.
“We just found this as an opportunity to grow our online business and theirs and have more people get to know who we are,” Bonoff says.
She has her ear to the ground for more opportunities to expand.
“When the opportunity looks like the right fit, we’ll do it,” she says.
BCER, an engineering firm in Arvada, Colo., bought another engineering business, Rimrock Group, which specializes in designing technological systems for new buildings and renovations. The purchase allowed BCER to immediately expand into an area of expertise it didn’t have – and that would have taken it years to develop by putting a staff together one by one.
“Growing things organically is very difficult,” says Marc Espinosa, president of BCER. “I had been discussing seriously for two years, how could we develop this specialty in our company?”
Some buyers are looking to expand into a new geographic area. Jodi Hamilton now owns both of the Dream Dinners franchises in Chicago, giving her the entire territory for the stores where customers assemble ingredients for dinners that they can pack up and take home to cook. Hamilton opened a store two years ago in the city’s Ukrainian Village neighborhood, and hoped to expand at some point. Then earlier this year, the owner of a Dream Dinners in the Roscoe Village neighborhood approached Hamilton and asked if she wanted to buy her store.
It took Hamilton only about a week to say yes. She nailed down a private loan, and closed the deal.
“It was too good an opportunity to pass up, knowing that we would have the entire Chicago market,” Hamilton says.
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